Money market is the market for short-term funds meant for use for a period of upto 1 year. Money market provides means fir raising fund, for meeting short-term requirements of cash on one hand and the deployment of surplus funds for shun periods (of one year or less), on the other hand.
The important money market instruments are:
(a) Call Money. It is a method by which commercial banks borrow from each other and able o maintain the minimum cash balance called as Cash Reserve Ratio as required by RB!. It is a short-term finance repayable on demand with a maturity period of one to fifteen days. The interest rate paid on call money loans is known as call rate, It is a highly fluctuating rate that changes from day-to-day and sometimes even from hour-to-hour.
(b) Treasury Bill(T-Bills). Treasury bills are issued by Reserve Bank of India on behalf of the Government of India to meet its short-term requirements of funds. The issue period ranges from 14 to 364 days. T-Bills are negotiable instruments, i.e., they are freely transferable. T-Bills are available for a minimum amount of 25,000 and in multiples thereof. These are also called Zero Coupon Bonds.
(c) Commercial BilI\Trade Bills. A commercial bill is a bill of exchange used of finance the working capital requirements of business firms. It is a short- term negotiable and selfliquidating instrument. When goods are sold on credit. the seller (drawer) draws a bill of exchange and the buyer (drawee) accept it. On being accepted, the bill becomes a marketable instrument and is called a trade bill. when a trade bill is accepted by a commercial bank. it is known as commercial bill.
(d) Commercial Paper. A commercial paper is an unsecured promissory note, issued by a corporate with a fixed maturity period which varies from 15 days to 2 months. Since a commercial paper is unsecured, it is issued only by a highly creditworthy, reputed leading firms. Proceeds from, the commercial paper is to be raised only for working capital purposes.
(e) Certificate of Deposit. These are unsecured, negotiable, short-term instruments in bearer form, issued by commercial banks and development financial institutions. They can be issued to individuals, corporations and companies during periods of tight liquidity when the deposit growth of banks is slow but the demand for credit is high. The time period of certificate of deposits ranges from 91 days to one year.
